1st Interstate Offers Cut-Rate Credit Card

First Interstate Bank of California on Thursday became the first of the four giant California banks to offer a lower-rate credit card without restrictions, announcing a variable-rate card that could initially charge as low as 16.5% annually.

The move by the Los Angeles-based bank--whose 21% current annual rate is among the highest in the nation--could put rate-cutting pressure on the state’s three other largest banks, which dominate the California card market.

About 85% of California card holders have at least one card issued by Bank of America, Security Pacific, Wells Fargo or First Interstate, said David Robertson, vice president of marketing for the Nilson Report, a newsletter that tracks the credit card industry.

A small but growing number of institutions nationwide already have been lowering rates amid complaints from consumer groups about high card rates.

“Since they’re a major competitor, we’ll certainly take a serious look at what they’re offering,” Wells Fargo Bank spokeswoman Kim Kellogg said.

First Crack in Wall

“This is the first crack in the solid wall of major California banks” charging high rates on unrestricted cards, said Ken McEldowney, executive director of Consumer Action, a San Francisco-based organization participating in a national campaign aimed at forcing banks to lower their card rates.

First Interstate’s move is particularly significant, he said, because “this is the first indication that a major California bank (is trying) to take market share from the other guys.”

Bank of America charges 19.8% on cards carrying no restrictions, while Wells Fargo charges 20% and Security Pacific charges 20.4%.

The latter two offer lower-rate cards, but only under tight restrictions. Security Pacific, for example, offers a card as low as 16% annually, but the holder must have four other relationships with the bank.

Wells Fargo offers a 17% rate, but holders must be active customers for five or more years and have net purchases of $100 or more on monthly billing statements.

“We’ve tried to keep our card simple,” First Interstate spokesman John Popovich said. “We think these complex products are not that appealing.”

First Interstate said its new card will be available once customers begin receiving their April statements. It will carry a variable rate nine percentage points above the banking industry’s benchmark prime rate, which now stands at 7.5%.

The card rate will be changed quarterly.

Higher Annual Charge

However, the variable-rate card will charge a higher annual fee, following a practice initiated by several other banks issuing variable-rate cards. The new First Interstate card will charge $20 annually, up from $15 on its current 21% card.

First Interstate will continue to offer the current 21% card as well, because the lower annual fee will appeal to customers who always pay off their entire monthly balances to avoid interest charges, said Jaynie Studenmund, First Interstate’s manager of marketing and planning.

However, First Interstate will still charge more than several other California savings and loans. American Savings, for example, offers a 15% rate that carries no restrictions other than requiring holders to be California residents.

San Mateo-based Bell Savings and San Francisco Federal Savings offer variable-rate cards at 14.15% and 13.5%, respectively, with no restrictions.